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Process costing
9.4 By-products
Non-cost methods
Non-cost methods make no attempt to allocate joint cost to the by-product but
instead the proceeds either increase income or to reduce the cost of the main
product.
Other income – The net sales of by-products for the current period is
recognised as other income and is reported in the statement of profit or loss.
By-product revenue deducted from the main product(s) cost – The net sales
value of the by-products will be treated as a deduction from the cost of the main
product(s). This is similar to the accounting treatment of normal loss.
Cost methods
Cost methods attempt to allocate some joint costs to by-products and to carry
inventories at the allocated cost levels.
Replacement cost method – values the by-product inventory at its opportunity
cost of purchasing or replacing the by-products.
Total costs less by-products valued at standard price method – By-products are
valued at a standard price to avoid fluctuations in by-product value. This means
that the main product cost will not be affected by any fluctuations in the by-
product price.
Joint cost pro-rata method – allocates some of the joint cost to the by-product
using any one of the joint cost allocation methods. This method is rarely used in
practice.
Illustrations and further practice
Now try TYU question 7 from Chapter 9
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